Tax accounting service for foreign representative office in Vietnam

Establishing representative offices in Vietnam is one of the important rights of foreign traders. The representative offices can only carry out commercial promotion activities and cannot directly conduct profit-generating activities in Vietnam under the Law on Commercial. However, a representative office of a foreign company is also considered an enterprise and has to fulfill all tax accounting related to operations. In the article below, Viet An Law Firm – Tax Agent provides comprehensive tax accounting service for foreign representative office in Vietnam.

Legal basis

• Decree 07/2016/ND-CP detailing the Law on Commercial on representative offices and branches of foreign traders in Vietnam;
• Decree 126/2020/ND-CP detailing several articles of the Law on Tax Administration;
• Decree 139/2016/ND-CP as amended and supplemented by Decree 22/2020/ND-CP regulating license taxes;
• Circular 302/2016/TT-BTC as amended and supplemented by Circular 65/2020/TT-BTC guiding on license taxes;
• Circular 111/2013/TT-BTC guiding the implementation of the Law on Personal Income Tax;
• Circular 80/2021/TT-BTC guiding the implementation of several articles of the Law on Tax Administration and Decree 126/2020/ND-CP detailing an article of the Law on Tax Administration.

Define foreign representative office in Vietnam

In Article 3 of Law on Commercial 2005, the representative office of a foreign trader in Vietnam means a dependent unit of the foreign trader, which is established under the regulations of Vietnamese law to conduct market surveys and several commercial promotion activities permitted by Vietnamese law.

The operation of a representative office shall be confined to the conduct of liaison activities, market research, and investment opportunities promotion of its traders whom it represents, excluding services for the establishment of the representative office specified in specialized legislative documents.

The foreign representative office shall self-fulfill tax obligations following Vietnamese law if they carry out production and business activities of goods and services. They have to pay a license tax of 1 million Vietnam dong/year, personal income tax for employees and do not need to pay VAT and corporate income tax.

The tax obligations of a foreign representative office in Vietnam

The Vietnam-based representative office of a foreign company will have to fulfill tax obligations for the following taxes:

• The licensing tax.
• The personal income tax.

The licensing tax

According to Article 1 of Circular 302/2016/TT-BTC, as amended and supplemented by Circular 65/2020/TT-BTC the representative office of a foreign company in Vietnam has to fulfill license tax.

According to Article 4 of Decree 139/2016/ND-CP as amended and supplemented by Decree 22/2020/ND-CP the license tax rate applicable to the Vietnam-based representative office of a foreign company is 1,000,000 (one million) Vietnam dong per year.

The personal income tax

According to Article 25 of Circular 111/2013/TT-BTC, the representative office has the responsibility to deduct tax, declare tax, and pay personal income tax for the income from wages and salaries of their employees. The personal income tax is calculated based on whether the foreign employees are non-residents or residents of Vietnam.

Deadline for declaration: 30th of April

Time limit to pay a tax of the foreign representative office in Vietnam

In Decree 125/2020/ND-CP, the obligation to pay the licensing fees is as follows:

• The licensing fee shall be paid annually by the 30^th of January.
• In case capital is changed during the year, the licensing fee payer shall submit the licensing fee declaration dossiers by January 30 of the year succeeding the year in which the change occurs.

Household businesses and individual businesses are not required to submit licensing fee declarations. Tax authorities shall determine the licensing fees payable according to their tax declaration dossiers and tax administration database and inform the payer.

Besides, the annual personal income tax shall be submitted by the last day of the deadline to submit the tax declaration dossier.

The tax declaration dossier of a foreign representative office

The tax declaration dossier for licensing tax combines a tax declaration form in Decree 139/2016/ND-CP as amended and supplemented by Decree 22/2020/ND-CP.

The tax declaration dossier for personal income tax combines:

• A tax declaration form (Form 05/KK-TNCN) according to Circular 80/2021/TT-BTC;

• Registration of reduction based on family circumstances (if any).

Some questions related to declaring tax of the foreign representative office

Shall the foreign representative office declare the personal income tax monthly or quarterly?

The foreign representative office generates income from salaries and wages but does not generate revenue from selling goods or services, so they are not subject to value added tax declaration. Therefore, they shall declare the personal income tax monthly.

Penalties for violations against regulations on time limits for submission of tax declaration dossier

Legal basis: Article 13 of Decree 125/2020/ND-CP as amended and supplemented by Decree 102/2021/ND-CP regulating penalties for administrative violations of taxes and invoices.

Administrative penalties for violations of the tax declaration submission deadline are as follows:

• Penalties imposed in the form of cautions shall be imposed for violations arising from filing a tax declaration dossier from 01 to 05 days after the expiration of the prescribed time limits under mitigating circumstances.
• 2,000,000 to 5,000,000 VND shall be imposed for the act of submitting a tax declaration dossier from 01 to 30 days after the expiration of the prescribed time limits;
• 5,000,000 to 8,000,000 VND shall be imposed for the act of submitting a tax declaration dossier from 31 to 60 days after the expiration of the prescribed time limits.
• 8,000,000 to 15,000,000 VND shall be imposed for the act of submitting a tax declaration dossier from 61 to 90 days after the expiration of the prescribed time limits.
• 15,000,000 to 25,000,000 VND shall be imposed for the act of filing a tax declaration dossier more than 90 days after the prescribed time limits.

In this Decree, fines ranging from 3,000,000 Vietnam dong to 5,000,000 VND shall be imposed for the act failing to provide, or incompletely or inaccurately providing, information or data related to tax obligations of which registration must be made under regulations on condition that this act does not result in any reduction in tax obligations to the state budget.

According to Article 59 of the Law on Tax Management, the rate of late payment interest and the period over which late payment interest is charged in below:

• The rate of late payment interest is 0,03% per day on the overdue tax amount;
• The period over which late payment interest is charged is a continuous period from the day succeeding the day on which late payment interest is charged to the day preceding the date of payment of the outstanding tax, refunded tax, increase in tax, imposed tax, late transfer tax which was transferred into the state budget.

When is the time limit to submit the annual report of the representative office?

In Article 32 of Decree 07/2016/ND-CP, by January 30^th of each year, every representative office and branch shall submit operation status reports using the form stipulated by the Ministry of Industry and Trade to the licensing agency by post.

Tax accounting service for foreign representative office in Vietnam of Viet An Law Firm – Tax Agent

• Fulfill tax declaration: register personal income tax code for employees; declare personal income tax monthly/quarterly for representative offices according to law, submit tax reports to tax authorities;
• Tax settlement for representative offices: tax settlement according to regulations, submit tax settlement report;
• Handling financial reports, preparing quarterly, and annual tax reports, and reporting to tax authorities;
• Prepare periodic financial reports and year-end financial reports according to regulations of management authorities and requirements of the parent company;
• Legal representation and consulting on tax-related legal issues;
• Represent the company in working with authorities such as tax authorities, banks, and other management agencies.

Benefits when using tax accounting services of Viet An Tax Agent

Tax accounting is a conditional business profession, requiring high levels of expertise and understanding of Tax policy. Therefore, when using the tax accounting services of Viet An Law Firm – Tax Agent, there are the following benefits:

• Ensure compliance with the law on tax in Vietnam;
• Minimize risks related to tax regulations for foreign enterprises with representative offices in Vietnam;
• Save time and resources for foreign enterprises to focus on finding business markets;
• Support legal advice for issues related to foreign representative offices, helping to ensure legal operations and compliance with legal regulations.

Clients who need consulting tax accounting service for foreign representative office in Vietnam, please contact Viet An Law Firm – Tax Agent for the best advice and support!